National Health Insurance: Rx for Disaster


Control of health care services by government is not new. The modern history of social health legislation began in 1883, when Otto von Bismarck pushed through the German legislature his Sickness Insurance Law. The passage of that law was necessary, Bismarck thought, as a pre-emptive move against the growing political power of the new German socialist movement, and was designed to mollify the working people with a paternalistic medical program. Soon after that, many other European countries developed social medical programs; for example, England passed a series of laws building on the Poor Laws of the 19th century, starting with the National Health Insurance Act of 1912 and culminating in the National Health Service of 1948. By the mid 1950's almost all European countries had health care systems controlled by the State.

The purely political goal of medical legislation in most countries has usually been attained: consolidation of political power by giving "free" goods or services to the electorate. But that political goal has rarely been explicit. The ostensible reason for the government taking control has been improvement of the people's health by improvement of the "quality" of health care, and by making care available to more people, said improvements to be measured in terms of standard health indices. Historically, none of these nonpolitical goals has been consistently achieved by any nation merely by legislatively controlling its health care industry.

Government involvement in medical care in the United States began more recently. Except for some sharply limited areas of public health and medical care for military personnel, there was essentially no governmental involvement in health care in America until 1965, when the Medicare and Medicaid programs were passed. Because of the huge cost overruns of those programs, remedial legislation has been required; the most noxious of the cost control measures is the 1972 Bennett Amendment to the Social Security Act, which establishes Professional Standards Review Organizations (PSRO's). Several bills to establish a national health insurance program are now before Congress.

The range of legislation being considered for control of the health care industry is quite broad. Each law is designed as a partial or complete solution to one or more of three perceived problems: excessive cost, low quality, and unavailability of medical care. Personal aggrandizement of certain politicians is unquestionably one of the main, though subliminal, motivations behind the current legislation. If we are to believe that this is not the only motivation, then the politicians must be able to show that the crises they cite are real. This they have failed to do.


Has the rise in cost of medical care been out of proportion to that of the general economy? It has not, as the following facts will demonstrate: between1960 and 1970, the cost of health care increased about 50 percent. Those politicians whose virtues omit objectivity and honesty point to a rise in the cost of living index (representing mostly commodities) during that same time period, of only 20 percent, and call it proof of the skyrocketing costs of health care. What they don't say is that the cost of services, the category to which health care belongs, also rose 50 percent during the same period of time. And what of the unconscionable "killing" that doctors are making with excessive fees? Between 1955 and 1970, the income of physicians rose one-half a percent less than overall wages during the same period of time. A large part of the increase in cost of health care has been due to mismanaged government intervention into both the general economy and the medical marketplace.


Is the quality of health care in America low? Over and over again, we hear the charge that there is too much unnecessary surgery done. How do the politicians know that? One of their sources of information is a published statement by the former General Director of the Massachusetts General Hospital, John Knowles, that "incredible amounts" of unnecessary surgery was being done. When Dr. Knowles was invited by the Massachusetts Medical Society to produce any evidence to support this charge he was unwilling or unable to do so. For making this irresponsible statement, he became the first physician in 50 years to be officially censured by the Massachusetts Medical Society. It is upon evidence such as his that charges of low quality of health care are made.

Another avenue of support for the low quality charge is the citation of infant mortality statistics. That argument is still offered almost daily despite the fact that it was debunked years ago. Infant mortality means different things in different countries; statistical methods vary from country to country, and even within countries, such as ours. There are no standard criteria for determining infant mortality; even if there were standard criteria, countries with people of small average stature would have infants of small size, therefore, an artificially lower infant mortality; reporting of birth is the responsibility of parents in some countries, and reporting of deaths is not rigidly enforced in others; the extent to which legalized abortion in some countries lowers infant mortality is unknown; there are racial differences not related to socioeconomic level in the rate of infant deaths. If the United States is to be compared to another nation, it should be to one of about equal population, spread out over an entire continent, and of multiethnic origin. Such a country is the Soviet Union. In the United States, with its emphasis on free enterprise in medical care, with a "chaotic nonsystem," the infant mortality rate in 1970 was 19.7 per 1000 births. In Russia, in the same year, with its 60-year tradition of state-controlled medicine, with a heavy emphasis on public health and preventative medicine, the infant mortality rate was 28.0, 40 percent higher than ours.

Other evidence often cited as indicating low quality is that people on the whole are terribly dissatisfied with their health care. This is the least defensible of the attacks on American medicine. Several studies done over the past few years have had consistent findings: a large number of people (around 75 percent) believe that there is a crisis in medical care at this time, yet in the same studies, only 10 to 15 percent were unhappy with the overall quality of their own health care. This discrepancy can be accounted for only by a great deal of misrepresentation by loud public voices shouting "crisis" over and over. Annual surveys over the past few years show the medical profession to be the most trusted identifiable group in the country. Congress and the executive branch are consistently low on the same lists.


The third problem that has invited legislative intervention has been the alleged unavailability of medical care due to costs that could not be afforded by the poor, an overall shortage of physicians, and maldistribution of those physicians that there are. Even before there was a significant degree of intrusion by the government into health care delivery, the poor were not inadequately cared for. For example, one measure of the extent of medical care is the number of hospital admissions per thousand people in a given population. During the years 1963-1974, families with income under $2000 a year had 124 hospital admissions per thousand people. Families with a near poverty income, $2000-$4000 a year, had 142 admissions per thousand. These figures contrast with hospital admissions in families with incomes of over $10,000, who had 120 admissions per thousand. Of course, it could be argued that the quality of care offered during those admissions was suboptimal. Not only is it difficult to find evidence of low quality, it seems quite likely that the opposite is true; large numbers of poor people live near major teaching institutions where the quality of medical care may be at its highest. It is likely that a disproportionate number of admissions for the poor were to such institutions. Those who argue that poor people need significantly more hospitalization than others have yet to produce evidence that this is true.

Another myth tells the tale that poor people cannot get to see a physician when they need one. In 1970 the Department of HEW surveyed the medical care obtained by persons in the age group from 18 to 64. During that year, 68 percent of the low income groups saw a physician; in the middle income groups, 69 percent saw a physician; and in the high income groups, the proportion was 70 percent. There was no significant difference between those groups. Poor people in central cities, contrary to popular belief, were better off than others: 71 percent of that group saw a physician during 1970. But those figures do not tell the whole story since some of the people who were seen by a physician were seen more than once. The mean number of visits to a physician during the year 1970 was five in the low income group, four in the middle income group, and 3.7 in the high income group. It is clear from these figures that poor people can and do obtain medical care.

Is there a shortage of physicians? Since 1966 the shortage has been estimated at 50,000. It is still estimated at 50,000. Yet, over the past eight years there has been a net increase of more than 62,000 physicians. The number of physicians is now growing three times as fast as the general population. I submit that we are headed toward a doctor excess which may have catastrophic effects upon physicians as a group, as did the mass of overproduction of engineers following the Sputnik crisis of the late 1950's. As you will recall, our overreaction to that "crisis" resulted in massive layoffs of Ph.D. engineers, many of whom had to work as gas station attendants and taxicab drivers until they could be re-educated into other positions. Ironically, a few universities developed crash programs for putting some of those engineers through shortened educational programs to turn them into physicians.

What of maldistribution? The most that can be said is that there is uneven distribution. Washington, D.C., for example, has 410 physicians per 100,000 population in 1971, Florida had 168, while North Dakota had 96. But what does number of physicians per unit population mean? Does it mean lower quality of health care? If infant mortality is any measure of health care, it is easily shown that there is no positive correlation between those statistics and physician/patient ratio. For example, in 1971 Washington's high physician/population ratio accompanied an infant mortality rate of 28.5 per 1000 births, Florida's intermediate ratio was associated with a mortality rate of 20.7, while North Dakota's low physician/ population ratio accompanied an infant mortality rate of 15.3.

It is doubtful that many social planners believe that decreasing the number of doctors will improve infant mortality statistics, yet vital statistics can be manipulated to give this impression. In fact, the number of physicians in a given area has far less to do with health than with such factors as housing, sanitation, and diet.

As a further example, during World War II there was a sudden efflux of thousands of physicians from communities all over the country. Many places suddenly found themselves with a quarter to a half of their previous number of physicians and some communities were without any. Yet, looking at any given statistical measure of health, no significant differences can be demonstrated between the periods before, during and after the war.

We should also remember that in the latter half of the 20th century, uneven distribution has been smoothed out considerably by the availability of a variety of forms of transportation over small or large distances. Only two percent of the population of the United States is more than 25 miles from a hospital and only one-tenth of one percent is more than 50 miles from a hospital.


The "health care crisis" is largely a construction of demagoguery. Yet laws have been passed and new laws are being considered to combat the imagined crisis. A description of the ways in which the specific problems are being attacked follows.

Control of cost: The most direct method of cost control is price fixing, which was in effect between August 15, 1971, and April 30, 1974. The general failure of wage and price controls to prevent inflation is well known. Indirect cost controls included in legislation currently being considered or already passed are (1) mechanisms to reduce artificially the number of hospital admissions and length of hospital stay, to the detriment of patients, (2) restricted lists of drugs permissible for physicians to prescribe, (3) dictation of the type of health care facility in which patients will be treated, (4) subsidies to ambulatory health care centers, and (5) the creation of government controlled comprehensive health planning agencies. These measures clearly intrude into the doctor-patient relationship, negate the physician's professional judgment, and erode the patient's individual rights.

Quality control: The major mechanism to control quality is the establishment of a set of standards to which physicians must gear their medical practices, and peer review systems in which some doctors both prospectively and retrospectively police the judgment and decisions of other doctors. We do not have to wait until 1984; this Orwellian law has already been passed and is in the implementation phase, as will be discussed shortly.

Increase of availability: Measures to improve the availability of health care include establishment of government agencies and programs to pay for the care of particular needy groups, such as the poor and the elderly. Medicare and Medicaid take this approach and have now been in operation for seven years. Another measure being considered is to make private insurance available to everyone by direct subsidy through certificates or tax credits. The number of physicians is being artificially increased at a rapid rate, as pointed out before, by subsidies to both medical schools and medical students. Physicians have been brought to rural areas by programs allowing young doctors to spend two years in such areas rather than serving in the military. This approach is likely to work less well as military medical practice is made more attractive and the need for a doctor draft diminishes.


Let us now look at specific applications of these approaches. Medicare and Medicaid were passed in 1965 as Title XVIII and XIX of the Social Security Act. They were addressed to the problem of availability, and were designed to pay the health care bills of indigents and the elderly. Like most social legislation, these bills, especially Title XIX, have produced more problems than they have solved. The greatest problem was their inflationary effect on the health care industry; this is inevitable when a greatly increased demand is placed on the market with a relatively inflexible supply. One outstanding characteristic of these programs was their huge cost overruns: by 1970, Medicare had cost twice as much as the original projections, and Medicaid had nearly bankrupted several states, including California and New York.

Many cutbacks and alterations have been engendered by the massive expense of these programs, but the worst by far was the passage in October 1972, of Public Law 92-603, the Bennett Amendment establishing Professional Standards Review Organizations (PSRO). PSRO's exist mainly to determine whether specific health care services are medically necessary, and whether hospital services could be provided as well on an outpatient basis or in a less expensive facility. Each PSRO is authorized to overrule in advance a physician's judgment of whether hospitalization or treatment is necessary. Even if a service is deemed necessary, the PSRO is authorized to determine who should provide the service (which type of practitioner, hospital, etc.).

The PSRO is authorized to examine the records of any practitioner or provider of services; this will utterly, yet legally, destroy the confidentiality of all transactions between patient and doctor and make available to the federal bureaucracy the confidential medical and psychiatric histories of everyone subject to PSRO's—and this will soon include everyone in the country. Hospitals, private doctors' offices and other facilities are also subject to arbitrary inspection by employees of PSRO. Physicians and other providers are required to provide services limited to those that meet minimal standards of necessity and quality as determined by the PSRO, and all standards are subject to the authority of the Secretary of HEW. Those standards might be, in many cases probably will be, in disagreement with a physician's own training and experience; nevertheless, the Secretary of HEW can punish him for transgressing those standards by such devices as publication of the names of practitioners who fail to conform to the standards and fines of up to $5,000. All this—bureaucratization and subjugation of physicians, destruction of the doctor-patient relationship, and gross invasion of the patient's privacy—is being done in the name of better medical care.


Discussion of the full range of legislative approaches to deal with the health care crisis must begin with the labor-backed Health Security Act (HR 22, S 3) the most comprehensive proposal under consideration. Its chance for passage diminished dramatically when Senator Kennedy withdrew his support in April 1974, in favor of a compromise bill which will be described shortly.

Benefits under the Health Security Act would cover all citizens of the United States. The problem of cost control would be approached by several routes: direct, arbitrary control of fees and per capita payments by an all powerful Health Security Board; the requirement of Board approval of hospital operating costs; limitation of medication expenses by establishment of a list of drugs that can be prescribed by physicians and of the diseases and conditions for which they may be used; listing of the prices that a drugstore can charge for dispensing a drug; and a fixed budgeted amount of money available for all health care, to be distributed by the Board on a regional basis and into types of care delivery that the Board believes to be most cost effective.

In an attempt to assure high quality of care, the bill would establish a variety of mechanisms of peer review, establish national standards for licensing, overriding the current state licensing system, and establish requirements for continuing education of health practitioners. Any practitioner who fails to adhere to the edicts of the Board could have his participation under the Health Security Act suspended or completely terminated by the Board. Since the system will be universal and compulsory, this provision means that the Board will have financial life and death control over all health practitioners in the United States.

The Health Security Act also addresses the problem of unavailability of health personnel and facilities. It would establish several mechanisms for centralized planning of the supply and distribution of personnel and facilities and the organization of health services. It would provide special technical assistance and financial subsidies to health maintenance organizations, foundations, and other types of prepaid comprehensive health plans; it would subsidize the recruitment, education, and training of health personnel in the medical specialties in which the Board thinks there is a shortage, as well as providing for the training of new types of health personnel, as the Board desires.

President Nixon proposed his Comprehensive Health Insurance Plan (CHIP) (HR 12684, S 2970) in February 1974. It would be financed by a compulsory tax on employers, who will pay 75 percent of the premium for all their employees. The insurers would be private insurance companies but the content of insurance plans (which services can be rendered under what conditions) would be determined by the State. Control of costs and assurance of quality would be done largely by expansion of the PSRO program to cover outpatient as well as inpatient services. Reimbursement of physicians would be on the basis of state established fee schedules. There is a special provision for a subsidized catastrophic illness plan under which no family's liability for medical expenses in one year could exceed $1,500. Medicare would continue almost as it is now, but Medicaid would be replaced by a separate government health insurance plan administered by the states for poor, medically indigent, and high-risk people; the Federal Government would pay about 75 percent of the cost. Other health care cost controls would include establishment of state planning agencies to approve capital investments, payment for drugs on a lowest price basis, and predetermined reimbursement systems for hospitals.

CHIP does very little to correct alleged physician shortages and maldistribution, but Nixon has presented to Congress several suggestions in certain health service categories in which he believes there are currently shortages. His Health Maintenance Organization (HMO) bill has already been passed; it subsidizes the development of HMO's with $375 million of general funds.

The Comprehensive National Health Insurance Act (HR 13870, 8 3286) is a compromise bill proposed by Senator Kennedy and Congressman Mills in April 1974, and is designed for early passage. It is similar to President Nixon's. Its cost will be about the same, about 40 billion dollars; insurance premium costs will be about the same, as will the co-insurance and deductible aspects. The plan will be carried out mainly through private insurance companies as intermediaries, with employers paying about three-fourths of the cost, and employees, about one-fourth. Medicare will be maintained with slightly expanded benefits for those over age sixty-five.

The differences between this bill and Nixon's are mainly those of details. Low income employees will pay less than those with high incomes; the collection of premiums will be through the Social Security System instead of private insurance companies; administration of the health plan will not reside in HEW, but in a Social Security office divorced from HEW; the catastrophic illness liability is reduced to $1,000.

Unlike the Nixon plan, this one will be compulsory for all citizens of the United States, but physicians will be free to participate in the program or not. However, the patient must pay a nonparticipating physician out of pocket, so anyone desiring a private doctor will have to pay twice: once for his government insurance, and again to the doctor. Senator Kennedy, at his news conference in April, assured us that all of the basic ideas and goals of his 1973 Health Security Act are incorporated in this one.

Another main contender among the pending national health insurance bills is the AMA's Medicredit (HR 2222, S 5444). It is aimed at making health care available to all citizens by providing them with private health insurance coverage through a system of certificates and tax credits that are assigned according to ability to pay. It also provides catastrophic illness coverage, regardless of previous medical history. This bill is directed entirely at availability of professional care, maintaining virtually intact the current system of medical care. There are no cost or quality control provisions in the AMA bill.

Many other bills provide their own variations of the themes presented by the major contenders. The American Hospital Association bill (HR 1) provides for administration of a national program locally by Health Care Corporations. The proposal of the health insurance industry (HR 5200, S 1100), provides tax incentives for private insurance as well as catastrophic illness coverage. The Long-Ribicoff bill (S 2513) constructs a new comprehensive national Medicaid plan, along with catastrophic insurance.


All of these bills have several practical shortcomings, some of which have been described. But they share a major flaw: they are all based on the premise that health care is a right, and must therefore be guaranteed to all citizens by the State. But rights are not bestowed by the State, nor are they created by the wants or needs of any group of people. The facts of Man's nature as a rational being determine his rights. It is the function of government to protect the primary right of people to pursue their own happiness and their own professional or economic goals. If government intervenes, with its monopoly on the use of force, on the side of the economically weak, the end result will be a totalitarian state of socialism or communism. If it intervenes with force on behalf of the economically strong, the result will be a totalitarian state of fascism. A frighteningly close view of the latter has been provided by Watergate and associated stories.

Health care is not a right, nor is it a privilege; it is a service offered by physicians and other health workers to those who wish to obtain it. Acceptance of the notion that health care is a right undercuts and will eventually destroy the concept of individual rights upon which a free society is based. The substitution of pseudorights for true individual rights is taking place at an accelerating rate in this country; this debasement of rights provides the vehicle that will eventually carry us into the brave new world of a totally planned society.

There is a health care crisis today. It is the threat of State control of the health care industry. The government is not responsible for all of our problems, but the poor planning, mismanagement, and dislocations of incentive that are inherent in any coercive bureaucratic intervention have exacerbated rather than improved the problems to which they were addressed.

What is the solution to this crisis, how should the threat of coercive control of health care delivery be answered? The use of physical force, or the threat of it, must be declared totally invalid as a means of achieving any goals, individual or social. Government by its very nature is coercive, and its power lies entirely in its monopoly on the legitimate use of physical violence. Government intervention and control must therefore, be kept entirely outside not only the relationship between doctors and patients, between patients and their insurance companies, between nurses and their hospitals, but outside all areas of economic life.

Physicians recognize that their first and highest professional obligation is to the welfare of their patients. In order to fulfill that obligation, they must be left free to exercise their own best judgment in their patients' interest.

Patients will discover that they themselves are the real victims of the concept that health care is a right; they will suffer the most from the construction of PSRO's and the nationalization of medicine. It is their privacy that is being invaded by Federal computers, their health that is being tampered with, and their doctors who are being forced to divert their loyalty, formerly belonging only to patients, to the paying Uncle who is calling the tune.

Robert M. Sade is a physician on the staff of the Children's Hospital Medical Center in Boston. His article "Medical Care as a Right: A Refutation" (which appeared in REASON's Special Issue on "Libertarian Politics and Issues" in September 1972) caused considerable controversy within the medical profession when it was first published in the NEW ENGLAND JOURNAL OF MEDICINE in 1972.